I do get it, by the way – when you think you just can’t afford to pay into a pension right now.
There’s the mortgage; all the bills; the endless food shops; the ever rising cost of living (I mean when did it become £1.65 to send a letter?!). No matter how good business is or however good a month you’ve had, there just never quite seems to be enough spare to stick into some kind of pension pot.
And while you probably don’t need me to point this out – ultimately, at some point you’re going to want to work less hard, and you ARE going to need some money.
Pension planning is just the way that most people go.
There are loads of other things you can do as well, to give yourself some cash coming in during retirement. We’ve talked about them in other blogs (which you can read here) but having a range of income streams is one of the most important things that business owners can do, to give yourself that flexibility.
I think most of us get to the stage where we want to pay into a pension. We know we should pay into a pension… but then many people just don’t feel like they can afford it.
And unfortunately, this can cause a massive problem. It’s what we call the danger of inaction.
I’ve been a Financial Adviser for more than 15 years. I’ve been trusted to look after more than £7.48million of client assets in regulated funds and I can promise you, the danger of inaction is a very real thing.
I don’t just see it with pension planning. I also see it with things like will writing and life cover and other things that people put off until suddenly, there’s a crunch point. Oh dear. Too late.
With some things, you can take action quite quickly and while putting it off isn’t ideal, the long term consequences might not be too bad.
If you take something like will writing – it’s fair to say that most people as adults should have a will. Even if you don’t feel like you’ve got a lot of stuff to leave to people and you haven’t got any underage children who need guardians, it’s just easier on the paperwork side for the people you leave behind.
But for as long as you are alive, it doesn’t really matter if you haven’t got one. There’s no long-term consequence, providing you get it written before you die. It doesn’t matter whether you write it at 25, 35, 55 or 85 – it makes no difference at all, as long as you’ve got the mental capacity to write a will.
The same applies with things like life assurance. Most people will take out some sort of protection, to protect their mortgage or provide money for their partner to raise the children if anything happens. Providing nobody dies, you could take the cover out at any point.
Obviously in an ideal world, you’d set this up as soon as you get your mortgage or as soon as your first child is born. But if you don’t get round to doing it until your kids are in their teens, it’s not the end of the world. Providing you live that long, of course.
Once you’ve set the cover up, it’s going to be valid immediately (with a few exceptions – most policies don’t cover things like suicide if you haven’t held the plan for at least 12 months, for example). But besides that, if you take out life cover at 45 and you die at 48, it’s going to pay out.
With your pension though, something very different happens.
As we’ve talked about before, for most people, a pension is a pot of money that needs to grow over time. It’s going to be invested in different assets, which are going to depend on your risk tolerance and how you feel about that and the other things you’ve got in place.
But ultimately, the key point is your time IN the market, not timing the market.
We can’t make a guess as to when stocks and shares will increase or decrease in value. But what we can do is even it out over a period of time by being invested through the ups, through the downs, and on an ongoing basis.
The problem with putting off your retirement planning is that your money has much less time to grow.
If you started paying £100 a month into a pension in your 20s, you’d likely end up with a pot worth somewhere in the region of £438,642 when you come to retire. To put this into context, if you started in your 50s, you’d need to pay in £1125 a month to end up with the same pot.
Clearly we can’t go back in time, but it is NEVER TOO LATE TO START. The sooner you start, the longer your money has to grow. If you regret not to paying into a pension in your 20s, don’t regret not doing it in your 40s too!
If you wait until you’ve paid off your mortgage and cleared all your debt and your children have left home before you start your retirement planning, you may well be in your 50s. And if you leave it too long, you might find there is simply not enough time to save the amount of money you want and need to have a decent retirement.
Now this is all stuff that I look at with clients as a Financial Adviser, but a lot of people want to educate themselves and see what options are out there.
If that is you, then I invite you to check out the information on Pathway. It’s my signature programme, It’s been designed to help you get on top of these things and get started NOW. I’ll show you how to find money now to invest for your future – even if it’s only £20 or £30 pounds a month. Because starting small is better than not getting started at all and because of the strategies and tips I teach, most people will end up finding much more than that.
Click here to find out more about Pathway and how you can get involved!
Until next time,
Claire